Max Chuard is a true Temenos veteran. He had his first day at work at the Geneva-based banking software specialist back in 2002. In February 2019, the finance graduate from HEC Lausanne took over as CEO. In the year of his 20th anniversary, of all things, this storybook career has suffered deep scratches. At the end of September, Temenos shocked the markets with a massive profit warning. Max Chuard recently forecast a 25% decline in earnings before interest and taxes (Ebit) for 2022. Previously, he had held out the prospect of growth of around one-tenth. The CEO expects software license revenues to stagnate. Here, the previous guidance was for an increase of between 16% and 18%. In terms of Ebit, Temenos is now in danger of falling back to the level of 2018. In terms of stock market value, the Group has already plunged to the level last seen in summer 2016. On the day of the profit warning alone, the mid cap slumped by up to almost 24%.
The drastic reduction in targets was necessitated by a weak business performance in Q3 2022. Temenos' license revenues shrank by 19% to USD 76.3 million compared to the same period last year. While total sales slipped 8% to USD 212.8m, Ebit slumped by more than half to USD 40.8m. Management points to longer sales cycles. In general, banks had become more cautious in their investment decisions in view of the uncertain macroeconomic outlook. Max Chuard made no secret of his disappointment with the quarterly results. At the same time, however, the CEO tried to spread optimism: "We have a strong and resilient business model." The group leader singled out the Software-as-a-Service (Saas) segment as the "bright spot" of Q3. Chuard sees growth in this segment as a foundation for strong recurring revenue (ARR) performance in the years ahead.
The CEO was obviously unable to score points with Petrus Advisers with this. Rather, the activist investor from London has once again taken aim at management. "The adjustment of the 2022 targets by Temenos has confirmed our doubts about the ambitious targets and the opaque communication by the company's management," Petrus announced. At the same time, in light of the drastic profit warning, the investment firm suggests that Temenos management may have withheld negative news for some time. In principle, Petrus Advisers is convinced of the potential of the technology group. "We will increase our stake in the company on favorable days to further accelerate Temenos' catharsis," the Brits said. Already, they would like to get in touch with other investors to discuss the company's positioning and the future of its management. Specifically, Petrus named Martin Ebner in this context, who holds a good 10% stake in Temenos, according to Refinitiv. Petrus Advisers itself is reported to have entered less than 3% in the share register.
What is certain is that things are likely to be anything but quiet for Max Chuard, even on the home stretch in the year of his 20th anniversary of service. In addition to the operational problems, the rumblings among the shareholders will probably continue to occupy him. Investors can accompany the Mid Cap into what may be a trend-setting phase with a new Softcallable Barrier Reverse Convertible. The product comes with a 45% risk buffer. As long as Temenos does not use up this cushion, the BRC will yield the maximum return of 14% p.a. at maturity in one year - this value is derived from the guaranteed coupon. If the underlying instrument falls to or below the barrier, the partial protection expires. The product would then be linked to the performance of Temenos. In this case, the coupon would cushion the impending loss somewhat. Please note the soft callable feature: Leonteq can call the issue early and redeem it.
Issuer: Leonteq Securities AG (Rating: Fitch BBB)
Coupon Trigger Level: 120%
Memory Coupon
Autocall Frequency: Semi-anually
Participation: 100% in the absolute performance (if no barrier event)
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